The energy regulator claimed the size of the fine was decided upon to reflect the severity E.On had breached the rules in place for both doorstep and telephone sales. The mis-selling occurred between June 2010 and December 2013.
Ofgem senior partner in charge of enforcement, Sarah Harrison, said: The time is right to draw a line under past supplier bad behaviour and truly rebuild trust so consumers are put at the heart of the energy market.
"E.ON has today taken a good step by accepting responsibility for its actions and putting proper redress in place."
E.On will pay an average figure of £35 to 330,000 if its customers who would usually receive the Warm Home Discount.
In addition to those customers, it will write letters to some 465,000 customers specifically identified by the energy firm. Each letter will advise the recipient on how to get in touch to see if they were also mis-sold to.
E.On chief executive, Tony Cocker, said it was totally unacceptable that his sales team had not been fully clear on the different energy tariff choices they had.
He said: "There was no organised attempt to mislead, and Ofgem has acknowledged this, but that does not excuse the fact we did not have in place enough rules, checks and oversight.
Ofgem has handed out a staggering £100m in fines and redress to various energy suppliers over the last four years. Just over one-third of that, £39m, has been done to mis-selling.
The previous highest mis-selling fine was £10.5m, issued to SSE last year. A similar penalty was also issued to ScottishPower £8.5m fine later the same year.
Latest gas and electricity news brought to you by UK Power - the energy price comparison site.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.